$2 Trillion

I really have no conception of how much $2 trillion is, and I’m not helped much by knowing that it’s enough for a stack of 20-dollar bills to reach the moon.  $2 trillion is really, really a lot of money – I got that part.  I know that it is $2,000 billion, and that helps some because I have some sense of what a billion is.  I also know that $2 trillion is equivalent to 1/7th of the entire U.S. economy, which has a GDP of about $14 trillion.  So $2 trillion is a huge amount of money, but it is a relatively small piece of the whole, about 14%.

$2 trillion is the amount that businesses are currently holding in cash and short-term investments rather than investing in long-term productive activity that would create jobs and thereby spark our stagnant economy to life.

$2 trillion is also roughly the additional amount that full-time workers would earn each year if productivity growth had been shared since 1979 the way it was for more than thirty years before 1979.  (I get this from Steven Greenhouse’s The Big Squeeze, page 5, where he calculates that shared productivity growth would result in full-time workers earning about $22,000 more than they actually do.  There are about 100 million full-time workers, and multiplied by $22,000, that amounts to $2.2 trillion.)

I think these two different $2 trillion amounts are related.  That the $2 trillion lost to workers by the disappearance of productivity sharing has piled up in corporations where they cannot find a useful purpose for it.   And  because their wages have stagnated, workers do not have enough spending power to buy all that our economy can produce, and that this insufficiency of wages and salaries is the principal cause of our current economic stagnation.  If this is so, then raising wages (and quickly) would be the best way to stimulate our economy.

This is relevant because the business press is currently debating why that $2 trillion in corporate cash and short-term investment is being “sidelined” (meaning not just temporarily out of the game and ready to substitute for existing players, but in the football metaphor, that the economy is playing with only 9.5 players rather than 11).  One view says this huge amount of money is sidelined because of “business uncertainty” related to all the new regulations the Obama administration is imposing.  The other view holds that businesses are sitting on this money because there is insufficient consumer demand to assure businesses of profitable investment opportunities.  The second view believes that if consumer demand were “robust,” businesses would take that $2 trillion off the sidelines and even borrow money to invest in productive economic activity.  The vast majority of consumers are wage-earners, of course, the same folks who lose about $2 trillion a year because they have not been sharing in economy-wide productivity gains.

If these various $2 trillion amounts are related as cause and effect, it means that transferring some part of the $2 trillion in sidelined money – say just $500 billion – to workers in increased wages and salaries would result in more profitable opportunities, thus more business investment, millions more jobs, even more profitable opportunities, and an economy growing at 5% or 6% (for a while) rather than the hoped for 3% growth that is now projected.  At 3%, a good growth rate in normal times, it might take a decade to get unemployment down to below 5%, and meanwhile an enormous amount of permanent social and economic damage will continue to be done.

Though I’m not an economist, I am well aware that there is no existing mechanism for increasing wages that dramatically across the economy – a $500 billion transfer from the corporate pile to wages and salaries would amount to a $5,000 increase for every full-time worker.  Unions are now too weak to get substantial increases like that for their own members, let alone to have their traditional positive “spillover” effect on nonunion workers.  And the federal minimum wage is now so low (at $7.25 an hour) that raising it even very dramatically (to say $10), while highly desirable, doesn’t affect enough workers to get much of that corporate pile off the sidelines.

The point is that our economy is growing too slowly because workers don’t have enough consumer spending power, and as a result, businesses don’t have enough investment opportunities to put all their capital to work.  Investors have too much because workers have too little, and vice versa.  Transferring a sizeable chunk of it would probably be good for everybody.

Fighting for living wages and improving prospects for union organizing are the best options to restore productivity-sharing going forward.  But in the short-term, to get us out of our current stagnation, the one best way to restore the balance between investors and consumers might be to raise taxes on corporations and high-end individuals and then air drop the resulting revenue in 20-dollar bills onto low-wage communities across the country.

If that strikes you as a frivolous idea, ask yourself why there is no national discussion of how to restore productivity sharing in order to increase wages, consumer demand, business investment, and millions and millions of jobs.  Ask yourself why, instead, we’re discussing how to cut Social Security and public service workers’ jobs and pensions.

Jack Metzgar, Chicago Center for Working-Class Studies

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5 Responses to $2 Trillion

  1. Pingback: Stat of the Week

  2. Kathleen Malachowski says:

    Jack, this is a voice from the past. I am now an educator at a community college in New Jersey. Somehow, I have ended up as our faculty unions go to person when it comes to legislative action. I am a health professor who remembered having labor conversations with friends in Chicago. These memories lead me to this website.
    I am appalled at where things are heading in Wisconsin and Ohio. Our New Jersey governor has been beating up on our teachers and public employee unions and this only add fuel to his flame. This article hit the nail on the head. But, what can we do? We are offering support to the Wisconsin public workers. We are attempting to gain political support from the NJ politicians. Do we have a chance or is it a matter of time? I believe our president needs to step in and save the middle class.
    We had a great contract for 30 years. And this was in a Republican county. Our teachers became complacent, didn’t get out
    and vote and now we are paying the price. The Public Employee Relations Commission (PERC) now has a governor appointed leader, we don’t have chance in gaining any ground with unfair labor practices. Our college president knows this and now nothing gets settled at the college it all goes to PERC. We’ve already lost a lot of our collective bargaining rights.

    I am glad to see you are still writing. Our faculty tends to only focus on what is happening on our campus. My legislative action was able to shed some light on how the county and state government was affecting our jobs. Your article enlightens me to the bigger labor picture. I’m all for printing copies and dropping them from helicopters on Congress, the White House and state legislators. I’m going to attempt to share your article with our Republican Assemblyman. He is a previous faculty and NJEA member. Wish me luck!

    Like

  3. Barbara Jensen says:

    This is the valentine I was looking for! Thanks, Jack, once again, for hitting the nail exactly on the head. How do I post this to my facebook page where I am battling with a diverse crowd (politically)?

    @Betsy, I’ll meet you at the helipad!

    Like

  4. Jack Metzgar has pulled the veil and revealed that corporations are not in the business of sharing profits with workers or stimulating the economy. Ditto for the banking industry. The transfer of wealth from the working and middle classes to corporations and the wealthy is now complete. The economy is anemic because the parasites have sucked the life from the host. I know it’s hard to put the fork down when you’re having a good meal.

    What will it take to change this scenario? I agree that organized labor could make a difference. Another mechanism that would help is to launch a populist movement in which people withdraw their money from Wall Street and commercial banks and develop a more robust peer-to-peer lending system to put money in the hands of small businesses. It’s very difficult as a self-employed business owner to find financing for start ups or expansion that would create jobs.

    It’s clear that big business is not coming to the rescue. Thanks, Jack, for putting the numbers on the table.

    Like

  5. This is brilliant in its clarity.
    Let’s print out thousands of copies and air drop it from helicopters onto Congress, the White House and state legislatures.

    Like

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